Sunday, September 21, 2014

Charles Schwab: Steel Maker and a Tragedy

One
of the most desired resources during the Industrial Revolution was steel. Most
countries that wanted to become industrialized must be able to produce their
own steel. And the United States, one of the most industrialized and advance
countries during the late 19th century, had produced their steel.
Several men managed to capitalize on the need of steel and became rich. Among
these men were Andrew Carnegie. But within the mist of Carnegie, another man
grew to become an iconic industrialist. His name was Charles Schwab.Charles
Schwab born to the state that served as home for many steel mill. In 1862,
Charles Schwab was born to a well off family. He was able to attend St. Francis
College in Loretto, Pennsylvania. After studying college, during the late 1870’s,
he worked as a small time worker in the Edgar Thomson Steelworks, a subsidiary
owned by Andrew Carnegie. He worked for years with $2 per day salary. His years
of hard working labor caught the eye of the management, and in 1887, Carnegie
appointed Schwab as a manager of the Homestead Steel works in Pennsylvania. In
1889, he was transferred to Thompson Plant.

His
transfer could not have been a good timing. Three years after his transfer, a
tragedy occurred in the Homestead plant. During his absence management and
labor relations deteriorated rapidly. Henry clay Frick managed the problems
heavy handedly. A massive strike and lock down happened to the plant in 1892.
Frick hired the Pinkertons retake the steel plant for the management. The
confrontation between the workers and the Pinkertons turned bloody. Both sides,
the workers and the Pinkertons, suffered casualties. Later, the state governor
of Pennsylvania sent the state militia to restore order. Negotiations underwent
and by 1892, the strike was over. However, the management, under Henry Frick,
as well as Carnegie suffered public condemnation and outcry.

After
the disastrous Homestead Strike, Carnegie brought back Schwab as manager of the
Homestead Plant, giving him the task of repairing the severed management and
labor relations. Schwab proved to be efficient. His work in Homestead restored
workers morale as well as productivity. And because of his efforts in
homestead, in 1897, Andrew Carnegie placed Schwab, who was only 35, to become
the President of Carnegie Steel. His presidency allowed him to earn a million
dollars every year.

During
his presidency of the Carnegie Steel, he would be a major player for the
creation of the first billion dollar corporation in the world – US Steel. In
1900, Schwab made a speech discussing his vision of an efficient and profitable
steel company. He advocated vertical integration of companies, from iron ore to
coal mines to distribution and specialized steel product makers. Among those
who carefully listened and attracted to his speech was the financial mogul J.P. Morgan, and his companion, another financial expert, Elbert Gary. Morgan,
who already ventured into different industries, from railroad to electric, and
other modern innovation, targeted the steel industry to be added to his
portfolio. And after listening to Schwab, he saw him as a mediator for a buyout
of Carnegie Steel. Meanwhile, Carnegie was becoming older and felt tired of
running a business. He wanted to pursuit a more humanitarian works through philanthropic
activities. It was a good timing for Schwab and Morgan. Through Schwab, Morgan
was able to obtain Carnegie’s price for his steel company, about $500 million.
Morgan reluctantly agreed to the price.

In
1901, a merger of Carnegie Steel and other big steel company resulted to
formation of United States Steel. It had a capital worth of a billion dollar. And
at its helm, it’s first President, Charles Schwab. Under Schwab, he controlled
over 168,000 employees and owned over 200 steel plants across the United
States.

But
Schwab’s position in the US Steel won’t last long. Management style between the
President of US Steel, Charles Schwab, and the chairman of the board, Elbert
Gary, did not matched. Gary wanted to expand further the market share of the US
Steel in the US market. Schwab on the other hand wanted to improve and make US
Steel more efficient and stable. For two years after the foundation of US Steel
and conflict between Gary and Schwab, in 1903, Gary took the upper hand and
Schwab was forced to leave US Steel. For a year, Schwab remained obscure in the
American steel industry.

After
a year leaving US Steel, Schwab returned to the steel industry. In 1904, Schwab
bought a small steel company in Bethlehem, Pennsylvania. The company was
Bethlehem Steel. Schwab bought the company with the aim of developing Bethlehem
Steel into a major competitor of US Steel. He modernized steel facilities and
made it more efficient. He hired young talents and paid them handsomely. He
also gave bonuses to workers when productivity was high. He also made his
vision in 1900 a reality by buying mines of iron ore in Cuba and coal mines as
well. He also made Bethlehem Steel a producer of steel products like ship and
railroad tracks. During World War I, Schwab saw an opportunity to increase his
steel company’s sales. He went to Britain and secured a contract with the
British government worth $500 million. From ships and submarines, Bethlehem
Steel products were used to produce weapons.

By
the 1920’s, Schwab also diversified his activities. He invested in International
Nickel and Chicago Pneumatic Tools. Also, he became the President of the Iron
and Steel Institute. He was also able to buy a huge mansion in New York.

But
his wealth would disappear by the end of the 1920’s. The stock market crashed
in 1929, bringing the United States into the Great Depression. Schwab in
particular was drowned with debt. All his holdings became worthless, like his stocks
and mansions. In 1939, Charles M. Schwab passed away a poor man in New York.See also:Andrew CarnegieAndrew MellonJohn Warne GatesBibliography:Rogers, R. An Economic History of American Steel. New York: Routledge, 2009.Geisst, C. Encyclopedia of American Business History. New York: Facts on File, 2006.Greenberg, B. et. al. Social History of the United States. California: ABC-CLIO Inc., 2009.